Investment Research — General Market Conditions
07 January 2014
Commodities Update
The polar vortex heats up markets
A polar vortex has hit the US, bringing freezing temperatures all the way down
to the southern states.
The hard wind chill and heavy snowfall has created an urgent demand for
energy to heat up houses, putting imminent pressure on natural gas supplies.
Consequently, natural gas spot prices have soared.
The extreme winter weather has also spurred worries over the possible effects on
winter wheat and citrus crops, sending grains and juice prices up.
Temperatures are forecast to rise back up to more normal levels during the
week, which should normalise natural gas spot prices.
The effect on crops might not be fully visible yet and delayed effects on prices
can therefore not be ruled out, as news on crops’ progress is published over the
coming months.
Furthermore, live cattle prices have spiked as the hard weather is affecting living
conditions and making transportation to slaughter houses difficult.
Polar vortex making its way to
southern states
A polar vortex hits the US
The US is currently getting serious frost bite from a polar vortex. The arctic cyclone has
led to heavy snowfall and caused temperatures to drop significantly below what is normal
for the season and in many places even down to record lows, closing schools, businesses
and traffic.
The weather phenomenon has been felt from Canada and all the way down to the
southern states. In Nashville, Tennessee, the mean temperature is currently around -16
degrees Celsius and adding the wind chill factor, it feels like -21 degrees Celsius.
Normally, temperatures are around 6 degrees Celsius at this time of the year.
Source: NOAA
Natural gas spot prices have surged
Energy prices rise on urgent demand
While Americans struggle to keep warm, the freezing temperatures have heated up
commodity markets in the first days of 2014.
Natural gas spot prices have soared as the extreme wind chill has created an urgent need
to heat up American houses. Prices for natural gas for spot delivery in the midwest and
north surged more than 200% over the weekend as the spike in demand for energy to heat
up homes has put pressure on demand.
However, the polar vortex is forecast to last another couple of days before temperatures
return to more normal winter levels. The mean temperature in Nashville, Tennessee is
forecast to rise to around -4 degrees Celsius tomorrow and further up to around 6 degrees
Celsius at the weekend. The outlook means that spot prices are likely to have peaked and
should fall back over the coming days.
Source: Bloomberg
Note: (1) Mid-Continent Natural Gas Spot
Price/Chicago City Gate, (2) Texas Eastern
Transmission (TETCO) M3 (New York City)
Natural Gas Spot Price
Analyst
Jens Nærvig Pedersen
+45 4512 8061
[email protected]
Important disclosures and certifications are contained from page 3 this report.
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Commodities Update
The fact that this is a short-term weather phenomenon furthermore means that futures
prices have been relatively unaffected by the hard weather. NYMEX Natural Gas futures
prices were relatively stable during the first couple of days of the year and NYMEX
Heating Oil futures prices even dropped a bit.
Futures prices unaffected
Agricultural prices up on crops worries
As the freezing winter temperatures have made their way to the southern states, supply
worries have sent agricultural prices up as well. Grains prices rose over the weekend on
worries that the winter wheat crops have been affected by the weather. Both the prices on
CBOT corn and CBOT wheat are up roughly 1.5% since mid Friday.
Source: Bloomberg
Supply worries have also reached soft commodities on worries that the weather might
even affect Florida’s citrus crop. The ICE Orange Juice price is up more than 4.5% since
the beginning of the year. However, it should be noted that the current Florida weather
forecast indicates the cold will not be extreme enough for orange fruit to freeze badly.
Grains prices have risen slightly
Orange prices up on frost worries
Source: Bloomberg
Source: Bloomberg
Livestock struggle to stay warm
Cattle prices spike
While price increases on grains and soft commodities have been rather modest, indicating
that the supply worry is not yet alarming, the livestock market is feeling the pressure from
the cold.
Cattle prices have spiked since late December on the back of worries over supply
disruptions following the difficult weather conditions. The cold weather makes living
conditions harder for cattle resulting in more energy being used to stay warm and thus the
risk of weight being lost. Furthermore, the extreme weather is making it difficult to
transport cattle to slaughter houses, disrupting the supply chain.
Source: Bloomberg
Since the beginning of the year, CME Live Cattle futures prices have increased around
2%, reaching record high levels.
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Commodities Update
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